What median price means
What do we mean by “median price” in relation to property?
The term median price is one that is thrown around a lot in real estate vernacular. But what does it actually mean?
Put simply, the median price is the middle price in a range of property sales. To work this number out, you would arrange a list of sold properties in order of cheapest to most expensive and derive the median price from the centre point of that list. Why do we use median price? REIWA commonly uses median price because it’s a better indicator of changes in the general property market than an average price given that it isn’t affected so much by a handful of very high or very low priced sales.
A common question we get asked is what is the difference between the median price and the average price?’ The two should not be confused. An average price is calculated by adding the total value of sales from a list and then dividing the answer by the number of properties sold.
This number is an entirely different figure and can potentially be skewed in accuracy by extreme prices that do not reflect the norm of the area.
How do we use the median price?
The median broadly illustrates the purchasing habits of buyers and is a stronger barometer of consumer sentiment and market conditions. It is widely used to estimate the selling price. If the median is at an early stage of growth then the seller would be more inclined to expect a higher price in the near future. If the median has already risen significantly over a long period then it may be less likely that a property will sell for more than comparable ones. Samantha Jones is a representative of the Real Estate Institute of Western Australia.